Spreading of Exceptional Claims by Means of an Internal Stop-Loss Cover

Assurance companies usually divide their portfoho into a series of tariff groups. This division is necessary for a comparison between the claims and the available premiums in the different tariff groups. By comparing these figures the company is able to verify if the tariff is appropriate or if a modification in hne with the empirical data is to be recommended. Apart from this technical argument companies are sometimes compelled to make such a division because of their constitution (e.g. mutual companies) or because it is prescribed by the supervisory authorities. Companies under-writing in various countries are under the obligation, as a rule, to keep special accounts for different countries and currencies. All these reasons lead to a division of the whole business into more or less independent subdivisions which quite obviously have not as much capacity to equalize the risk fluctuations as the whole portfolio.